Pacific Currents

Jusuf Wanandi
Vice Chair, Board of Trustees, CSIS Foundation and
Former Co-Chair of PECC

The year had just begun when news of the coronavirus outbreak shook the world. The World Health Organization declared it a pandemic when the new virus, which causes the disease COVID-19, crossed international borders and spread rapidly into many countries of different continents.

Over two months later, another bombshell hit the already shaken world: a drastic drop in oil prices as a result of strong disagreements between Saudi Arabia and Russia.

Judit Fabian
Visiting Researcher, Graduate School of Public and International Affairs, University of Ottawa

International trade is often framed in starkly divergent terms: either economies choose multilateral trade agreements (MTAs) and advance the cause of global economic liberalization, or they choose preferential trade agreements (PTAs) and put the entire system at risk. Canada has a long track record of pursuing PTAs and with the Trump administration’s opposition to multilateralism, and longstanding opposition in elements of the Republican and Democratic parties, this trend will likely continue. The question is whether progress will come at the expense of the global trade system.

Some economists believe PTAs to be trade-diverting, reducing trade with more efficient producers outside the agreement. Others insist that PTAs can create trade by shifting production to lower-cost producers in one of the participating economies. One prominent contrary argument holds that PTAs lead to discontinuities in tariff regimes between economies and regions, increasing transaction costs, disrupting supply chains, creating opportunities for corruption and harming global welfare, especially in developing economies.

Christopher Findlay 
Vice-Chair, Australian National Committee for Pacific Economic Cooperation and
Honorary Professor, Crawford School of Public Policy, Australian National University
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Background & Objectives

PECC is a unique not-for-profit multi-stakeholder partnership of thought-leaders from business, industry, government, academia, and civil society from 24 economies.

PECC’s origins can be traced to a seminar in Canberra in 1980 co-hosted by Australia & Japan. PECC emerged as a trusted, independent & a-political source of expert advice & support for Pacific Rim Nations seeking to accelerate economic growth by greater integration into a Rules-based Global trading system.  In addition to funding & disseminating independent research, the PECC and APEC secretariats are co-located in Singapore & maintain close links, while PECC works closely with APEC leaders.

Brian Lynch*
Chair, New Zealand Institute of International Affairs, Wellington Branch;
Chair, New Zealand Committee of PECC; 
Former alternate New Zealand member of the APEC Business Council.

The swirls and eddies currently sweeping across the Asia–Pacific region's geopolitical and economic landscape do not offer a promising setting for the review of any regional agency, even one as long-established, and soon to enter its fourth decade, as the institution known as 'Asia–Pacific Economic Cooperation'. APEC has recently been described as the 'premier economic forum'¹ for promoting regional growth and integration and 'a global leader in addressing pressing problems'. The 21 APEC member economies, including New Zealand, are home to 40 per cent of the world's population and account for around 60 per cent of global production.

Seemingly undeterred by the regional volatility, APEC leaders have launched a major project to chart APEC's forward path and identify its place in regional economic architecture beyond 2020. The 30th anniversary will be a significant one for APEC; 2020 will be notable, too, because it was the target date which APEC set, in 1994 in the 'Bogor Goals', for full realisation throughout the region of the vision of 'free and open trade and investment'.

John West
Adjunct Professor
Sophia University, Tokyo

In my recent book on the Asian Century, I argue that Asia is sitting on a knife edge. The potential of the region to generate good and happy lives for its citizens is enormous. But the requirements of success and the risks of failure are equally enormous.

Asia's stunted economic and social development

It is true of course that most Asian economies have achieved stunning development over the past decades. But despite the region's rapid rise, Asia is suffering from stunted economic development. No major Asian economy has caught up with global leaders like the US and Germany in terms of GDP per capita and living standards, and there is little likelihood of such catch-up occurring over the foreseeable future.

It is also true that China, India and Indonesia are becoming major economic and political powers. But their huge economic weight is due to their large populations, more than their levels of economic, business and technological sophistication which remain modest overall.

Hugh Stephens
Distinguished Fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committee for Pacific Economic Cooperation (CANCPEC)

Back in October of 2016 when the Canada-EU Comprehensive Economic and Trade Agreement, (CETA) was on the cusp of closure, the negotiations hit a roadblock when the Belgian region of Wallonia blocked the necessary consensus for the EU to conclude with Canada. Chrystia Freeland, who was then the minister of international trade, walked out of the negotiations in Brussels and packed her bags to return to Canada. She lamented that “… it is now evident to me, evident to Canada, that the European Union is incapable of reaching an agreement – even with a country with European values such as Canada, even with a country as nice and as patient as Canada.” A core element of her argument was that Canada and Europe shared common values, and therefore the path to an agreement should have been open. As we know, a compromise satisfied Wallonia’s concerns, mainly regarding the so-called investor-state dispute settlement process which allows foreign invested companies to sue governments for alleged discriminatory practices that negatively impact their investments. Canada and the EU went on to sign the agreement, most of whose provisions came into effect on Sept. 21, 2017. The government of Canada has cranked up its communications machine and is touting CETA as “a progressive trade agreement for a strong middle class”.

Hugh Stephens
Distinguished Fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committe for Pacific Economic Cooperation (CANCPEC)

Canada-Japan relations are at a low ebb politically and need to be rescued by urgent and decisive action.

One of our largest trading relationships has been put at risk by the perceived snub offered to Japanese Prime Minister Shinzo Abe in Vietnam in November when Prime Minister Justin Trudeau missed a scheduled press conference intended to announce that Canada, Japan and nine other Trans-Pacific Partnership countries had reached agreement in principle on a revised trade pact. Worse still, it was Canada’s last-minute case of cold feet that almost sank the agreement.

It is time for a reset to restore this important bilateral relationship. The best way to do this is to double down now to resolve the outstanding differences between Japan and Canada that are hindering conclusion of what has been relabelled the Comprehensive and Progressive Trans-Pacific Partnership.

Hugh Stephens
Distinguished fellow, Asia Pacific Foundation of Canada
Vice-Chair of the Canadian National Committee for Pacific Economic Cooperation (CANCPEC)

It hasn’t been a good few weeks for the Trudeau government’s “progressive” trade agenda.

First, the unwillingness of some countries to swallow elements of the progressive agenda was at least partially responsible for the sudden postponement of an announcement around the Trans-Pacific Partnership (TPP) last month in Vietnam. The announcement was expected to confirm that the 11 TPP economies had reached an agreement in principle to conclude the pact.

Then an expected agreement on the start of free trade talks with China did not materialize during Justin Trudeau’s Beijing visit earlier this week, blocked by Chinese objections to including “progressive elements,” such as labour and gender rights, in the negotiations.

In both cases, talks have not been completely derailed, but it is fair to say the outcome is not what was expected. And in both instances this progressive agenda has been fingered as a principal cause.

Given the fact that progressive trade is proving controversial, it is worth examining what the concept actually means. It has become the term of choice for the Trudeau government, a branding exercise that seeks to distinguish the Liberals from the Harper government. The thinking then goes, if the TPP — negotiated by the Conservatives — was unpopular with some elements of Canadian society, why not change the dial, add some “progressive” elements and even modify the name? Thus the new version of the TPP (with its 11 economy members, down from 12 since the United States backed out) is now the “Comprehensive and Progressive Trans-Pacific Partnership.”

Mark Millar 
(Author of Global Supply Chain Ecosystems and Visiting Lecturer at Hong Kong Polytechnic University)

During the 1990s and 2000s, international trade experienced a substantial boost from mass globalisation, resulting in a huge increase in the volume of inter-continental freight flows and yielding a bonanza for logistics service providers and freight forwarders around the world.

This globalisation frenzy was fuelled by an unprecedented combination of three key drivers in the pursuit of lowest-cost manufacturing – the out-sourcing of business activities to third parties, the off-shoring of production to low-cost countries and the un-bundling of vertically integrated manufacturing clusters into dispersed specialist activities.

Peter A. Petri (PIIE), Michael G. Plummer (Johns Hopkins University and East-West Center), Shujiro Urata (Waseda University) and Fan Zhai (Former Managing Director, China Investment Corporation)

The withdrawal of the United States from the Trans-Pacific Partnership (TPP) in early 2017 led the remaining 11 countries in that trade and investment agreement to explore alternative ways to sustain economic integration in the Asia-Pacific region. This Working Paper shows that, without the United States, these 11 countries can achieve significant gains from high-quality, TPP-like agreements among themselves, and from what might have to be a less rigorous but wider agreement in a separate, 16-member Asian trade negotiation, the Regional Comprehensive Economic Partnership (RCEP). Either of these multilateral options would yield benefits greater than those that would flow from bilateral agreements between individual countries and the United States alone, and gains from such accords could grow over time. For example, expanding the TPP without the United States to five other Asia-Pacific economies, all of which have expressed interest in the TPP in the past, would yield global income gains that rival those expected from the original TPP that included the United States, and the gains are even larger for some members. The United States, meanwhile, would suffer losses from such arrangements in two ways: first, because it would forego the benefits that would otherwise accrue from the relatively large TPP agreement, and second, because the new Asia-Pacific agreements would reduce US exports to the region as countries shift their trade to competitors of the United States. In the longer run, a new Asia-Pacific agreement or agreements would keep trade liberalization on the global agenda and likely attract further interest from large partners, including Europe. Eventually, the United States might observe that it is losing out and change its mind about joining these larger trade blocs. [Abstract from Peterson Institute for International Economics]

Download full report from PIIE website.

Sherry M. Stephenson
Senior Fellow
International Centre for Trade and Sustainable Development

Services have enabled manufacturing in the U.S. to become more efficient and competitive

Services have enabled manufacturers to take advantage of cutting edge technologies and become more productive. Services have also enabled manufacturers to grow the value of their operations from the initial stage of designing their products to the final stage of getting their products to their customers. Manufacturing has become a complex mix of many types of services, automation, and computer-driven production, with a large and growing share of value derived from the services components.

Consumer and capital goods increasingly embody a greater percentage of services. Manufacturing companies have increased their reliance on services for their inputs, and services constitute a significant portion of their outputs and revenue. Rather than thinking of manufacturing and services as separate economic activities in today’s economy, it is much more realistic and essential to think of them as having become inextricably intertwined. Manufacturing companies are now great users, producers and traders of services. It is in fact efficient services that make U.S. manufacturing more productive and give it a competitive edge in global markets. A new term, “servicification,” has been coined to describe the increasing use of services by manufacturing firms in their purchases and production, as well as their exports, pointing to the integrated role that services play in every step of the process (Swedish National Board of Trade). This is part of an overall global trend as noted in a recent OECD study on services and manufacturing which found that in the digital age, “services are part of a ‘business ecosystem’ where collaboration with customers, partners and contractors is the key to innovation and productivity.” (OECD 2017 study)

Peter F. Cowhey (University of California, San Diego), 
Jonathan D. Aronson (University of Southern California)

Digital technologies are becoming critical to every facet of the world economy. These digital technologies are the “digital DNA” that unleashes dazzling changes in the information, communication, and production capabilities that are transforming how the world works. We call this the information and production disruption. The IPD is rapidly altering the dynamics of firms, how markets perform, and the potential for stronger economic growth and social prosperity. Government policy makers with an eye to the future are searching for policies to leverage the best potential of these disruptions, but have yet to determine how to reconcile seemingly contradictory policy challenges. We offer recommendations for global economic governance that provide a new foundation for problem solving to cope with messy problems that inevitably accompany large-scale change. Despite the current political headwinds we show how trade policy can be the key platform for enabling an extensive complementary set of regulatory and nongovernmental actions to govern the IPD productively.

Scholars, government officials, and corporate executives have acknowledged to us that the disruption is occurring but that it is difficult to grasp because it is so multifaceted. This diffuseness makes it hard to distill the first priorities necessary for governance reform. We respond to this challenge by clarifying the fundamentals on how the IPD is altering national and global patterns of innovation. We choose this leverage point because economists agree that innovation—which we define as the commercialization of new knowledge—is central to global growth and prosperity.

Pamela Mar
Director of Sustainability
Fung Academy/ Fung Group

Insights: In Conversation With

Pamela Mar looks at how Asia's manufacturers can survive, and prosper, amidst changing markets and technological disruption.

Writer’s Note:

APEC officials were in Vietnam for the 2nd Senior Officials Meeting in preparation for the APEC Leaders’ summit to be held in Vietnam later this year. Connectivity was high on the agenda, as it is viewed as an essential driver for deepening regional economic integration, which is one of APEC’s four key priorities. APEC has launched a 2025 Connectivity Blueprint and is following this up with mid-term goals for 2020.

Pamela Mar
Director of Sustainability
Fung Academy/ Fung Group

Insights: In Conversation With

Pamela Mar outlines the challenges faced by Asia's production centers in a world where connectivity has become more critical.

Writer’s Note:

APEC officials were in Vietnam for the 2nd Senior Officials Meeting in preparation for the APEC Leaders’ summit to be held in Vietnam later this year. Connectivity was high on the agenda, as it is viewed as an essential driver for deepening regional economic integration, which is one of APEC’s four key priorities. APEC has launched a 2025 Connectivity Blueprint and is following this up with mid-term goals for 2020.

Hugh Stephens, Vice-chair, CANCPEC
Distinguished Fellow, Asia Pacific Foundation of Canada /Executive Fellow, School of Public Policy, University of Calgary

When U.S. President Donald Trump pulled the plug on U.S. participation in the Trans-Pacific Partnership in January, it was a bad day for Canadian supporters of the TPP.

But now it seems the TPP may still live under another guise, often referred to as the TPP 11. New studies have shown that even without U.S. participation, a transpacific agreement based on the new rules negotiated in the original TPP will still bring gains to all the partners. More important, moving ahead with the TPP 11 would constitute a global signal that trade liberalization is still vital for economic growth, and that preservation of open markets through multilateral agreements is the way of the future, rather than Mr. Trump’s protectionism or preference for zero-sum bilateral deals.

Hugh Stephens, Vice-chair, CANCPEC / Distinguished Fellow, Asia Pacific Foundation of Canada /Executive Fellow, School of Public Policy, University of Calgary

The Trump administration’s arrival has scrambled the cards in the trade policy world. Not only will the North American Free Trade Agreement (NAFTA) be reopened with uncertain results, but President Donald Trump has scuttled the Trans-Pacific Partnership (TPP) by announcing the United States’ withdrawal from the agreement. Canada, originally cool toward the TPP, pushed hard to be included in it. The TPP became the centrepiece of Canada’s Asia trade strategy, notwithstanding some public ambivalence on the part of the Trudeau government. With the TPP in its present form now in limbo, Canada still has options in Asia. First, it can keep an open mind with regard to the possible reconstitution of the TPP in another form, such as “TPP Minus One” (i.e., minus the U.S.). It should also push to reopen the bilateral negotiations with Japan that were suspended when that country joined the TPP negotiations. Canada is already exploring the possibility of an economic partnership agreement with China, perhaps on a sectoral basis, and simultaneously, it should actively pursue negotiation of a free trade agreement with the Association of Southeast Asian Nations (ASEAN) community. This could in time provide Canada access to the Regional Comprehensive Economic Partnership Agreement (RCEP) currently being negotiated among 16 countries in the Asia-Pacific region and would position Canada well in the eventuality that a Free Trade Area of Asia-Pacific (FTAAP) emerges. In the meantime, uncertainty regarding NAFTA’s future needs to be addressed. This uncertainty makes it more difficult for Canada to attract Asian investment but it also provides further impetus for Canada to diversify its trading relationships and to explore stronger relationships with Asian economies. 

Direct download of PDF (originally published for Canadian Global Affairs Institute)

Joaquim Tres,
Principal Specialist of the Integration and Trade Sector, Inter-American Development Bank (IADB)

Trade agreements cover 70% of all trade in Latin America and the Caribbean (LAC). Of the 270 free trade agreements (FTAs) currently in effect around the world, more than 70 include LAC countries.

In order to understand the impact of these agreements on the region, the Inter-American Development Bank (IDB) will launch a massive open online course (MOOC) on how they work and what they mean for governments, businesses, and people in LAC.

Steven Beck, Head of Trade Finance, ADB
Alisa DiCaprio, Research Fellow, ADB Institute

Over 31 million consumers in Viet Nam researched or purchased a product online in 2015. Just ten years ago, internet connectivity was only starting to become common. Digitization is changing how people trade. There are even more dramatic changes happening under the hood. The way trade is financed, processed and regulated has entered a period of disruption. We take this opportunity to consider the short and long term implications of digitization of the trade process. They’re not what you’d expect.

Loosening infrastructure constraints

Stephan W. Schill
University of Amsterdam

European and North American capital exporting countries have shaped international investment law for most of its history. They pushed for the customary international minimum standard of protection, forged the classical model of bilateral investment treaties (BITs) and now drive the present recalibration of international investment law. Despite counter-proposals from the ‘South’ over decades, the making of international investment law has been essentially a transatlantic enterprise with the ‘North’ as predominant global rule-maker.

But the past years have witnessed a marked shift in the geography of international investment law. Despite the Transatlantic Trade and Investment Partnership (TTIP) negotiations, there is little doubt that Asian countries, and particularly the economic powerhouses in the Far East, are becoming focal points in rule-making in international investment law.

John West
AUSPECC

Trade and regional integration must become more inclusive in the Asia-Pacific in order to win the support of public opinion, writes John West.

This note is inspired by the excellent press release, "Regional Solutions Needed for Global Challenges", issued by the Pacific Economic Cooperation Council (PECC) following a recent conference in Jakarta which explored the challenges for next phase of regional cooperation and the role of the media in communicating the benefits of trade and regional integration.